UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003
Commission file number 001-13913
WADDELL & REED FINANCIAL, INC.
401(K) AND THRIFT PLAN
(Full title of the Plan)
WADDELL & REED FINANCIAL, INC.
6300 Lamar Avenue
Overland Park, Kansas 66202
913-236-2000
(Name of issuer of securities held pursuant to the Plan)
WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN
Financial Statements and Schedule
December 31, 2003 and 2002
(With Report of Independent Registered Public Accounting Firm Thereon)
Report of Independent Registered Public Accounting Firm
The Plan Administrators
Waddell & Reed Financial, Inc.
401(k) and Thrift Plan:
We have audited the accompanying statements of net assets available for benefits of Waddell & Reed Financial, Inc. 401(k) and Thrift Plan (the Plan) as of December 31, 2003 and 2002, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Waddell & Reed Financial, Inc. 401(k) and Thrift Plan as of December 31, 2003 and 2002, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in schedule 1 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplementary schedule is the responsibility of the Plan's management. The supplementary schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
Kansas City, Missouri
May 28, 2004
WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting and present the net assets available for benefits and changes in those net assets of the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan (the Plan).
The Plan allows contributions to be invested in Waddell & Reed Financial, Inc. Class A common stock and mutual fund shares of (i) Ivy Funds, Inc. (formerly W&R Funds, Inc.) and the Ivy Funds trust (collectively, the “Ivy Funds”), and (ii) the Waddell & Reed Advisors Group of Mutual Funds. Waddell and Reed Investment Management Company, a participating employer in the Plan, and Waddell & Reed Ivy Investment Company manage the Waddell & Reed Advisors Group of Mutual Funds and the Ivy Funds, respectively. Fiduciary Trust Company of New Hampshire serves as the trustee for the Plan.
The Plan had 1,392 and 1,376 participants at December 31, 2003 and 2002, respectively. At December 31, 2003, 272 of the 1,392 participants in the Plan are former employees who have elected not to withdraw from the Plan.
(b) Valuation of Securities
Investments in mutual fund shares are stated at net asset value based upon market quotations as of December 31, 2003 and 2002. Torchmark Corporation common stock and Waddell & Reed Financial, Inc. common stock are stated at market value based upon market quotations as of December 31, 2003 and 2002. Securities transactions are recorded on the trade date (the date the order to buy or sell is executed).
(c) Dividend Income
Dividend income is recorded on the ex-dividend date.
(d) Administrative Expenses
Administrative expenses are paid by the participating employers, which are listed in note 5.
(e) Forfeitures
Forfeitures are held by the Plan and are then used to reduce the employer's current year expense. Forfeitures used to reduce employer expenses were $3,525 and $3,391 for 2003 and 2002, respectively.
(f) Federal Income Taxes
The Plan received a favorable determination letter from the Internal Revenue Service, dated April 24, 2001, indicating that it is qualified under Section 401(a) of the Internal Revenue Code and, therefore, the related trust is exempt from tax under Section 501(a) of the Internal Revenue Code.
2
The plan administrator is not aware of any activity or transactions that may adversely affect the qualified status of the Plan.
(g) Use of Estimates
The plan administrator has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
(2) Description of Plan
The following brief description of the Plan is provided for general information purposes only. Participants should refer to the Plan agreement for more complete information.
The Plan is a defined contribution plan covering substantially all employees of Waddell & Reed Financial, Inc. and subsidiaries. The Plan complies with the provisions of the Employee Retirement Income Security Act of 1974, as amended. Plan administration is accomplished through a committee of three persons who have authority to arbitrate disputes and settle claims arising under the Plan.
(a) Contributions
In 2003, employees were allowed to make pretax and after-tax contributions to the Plan. Employees were allowed to contribute a maximum of 100% of eligible earnings to the Plan. Each eligible employee was allowed to make “matched contributions” ranging from 1% to 5% of eligible earnings to the 401(k) component of the Plan. The Plan provided for a matching employer contribution of 100% of the first 3% of the employee's contribution and a 50% match of the next 2% of the employee's contribution. Employees were allowed to make “unmatched contributions” to the 401(k) component of the Plan not to exceed 95% of eligible earnings. Each eligible employee was also allowed to make “unmatched contributions” ranging from 1% to 6% of eligible earnings to the thrift component (after-tax) of the Plan.
In 2002, employees were allowed to make pretax and after-tax contributions to the Plan. Employees were allowed to contribute a maximum of 56% of eligible earnings to the Plan. Each eligible employee was allowed to make “matched contributions” ranging from 1% to 5% of eligible earnings to the 401(k) component of the Plan. The Plan provided for a matching employer contribution of 100% of the first 3% of the employee's contribution and a 50% match of the next 2% of the employee's contribution. Employees were allowed to make “unmatched contributions” to the 401(k) component of the Plan not to exceed 45% of eligible earnings. Each eligible employee was also allowed to make “unmatched contributions” ranging from 1% to 6% of eligible earnings to the thrift component (after-tax) of the Plan.
Employees direct the investment of employee and employer matching contributions among investment options available under the Plan.
3
(b) Benefits
Employees are fully vested as to their own contributions. Prior to January 1, 1999, vesting in employer contributions was graduated to 100% after six years of employment. Effective January 1, 1999, all future employer matching contributions are fully vested at the time of the contribution. The vested portion of a participant's account balance is paid in a joint and 50% survivor annuity upon retirement, death, or other termination of employment, unless a participant chooses a lump-sum distribution. The nonvested portion of employer contributions made prior to January 1, 1999 is retained by the Plan until the separated participant incurs a “break in service,” at which time the remaining account balance is forfeited and applied to reduce the employer's expense.
In accordance with regulations of the Internal Revenue Service, in the event the Plan is terminated, all participants would immediately become fully vested in their employer contribution accounts and Plan assets would be distributed. Waddell & Reed Financial, Inc. has no current intentions to terminate the Plan.
(3) Acquisitions
On December 16, 2002, the business and assets of Mackenzie Investment Management Inc. (MIMI) were acquired by Waddell & Reed Financial, Inc. MIMI employees became eligible to participate in the Plan on January 1, 2003.
4
(4) Plan Investments
The following table presents the number of shares and fair value of Torchmark Corporation common stock; Waddell & Reed Financial, Inc. Class A common stock; and mutual fund investments as of December 31, 2003 and 2002. Investments that represent 5% or more of the Plan's net assets are separately identified.
|
December 31, 2003 |
|
Number |
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
Torchmark Corporation common stock |
|
46,315 |
|
$ |
2,109,185 |
|
|
Waddell & Reed Financial, Inc. Class A common stock |
|
348,311 |
|
8,171,376 |
|
|
|
Cash |
|
— |
|
367,383 |
|
|
|
|
|
|
|
|
|
|
|
Waddell & Reed Advisors Group of Mutual Funds shares: |
|
|
|
|
|
|
|
Waddell & Reed Advisors Cash Management |
|
6,133,192 |
|
6,133,192 |
|
|
|
Waddell & Reed Advisors Core Investment |
|
1,905,037 |
|
9,868,089 |
|
|
|
Waddell & Reed Advisors International Growth |
|
682,204 |
|
4,079,578 |
|
|
|
Waddell & Reed Advisors New Concepts |
|
926,637 |
|
7,237,035 |
|
|
|
Waddell & Reed Advisors Science and Technology |
|
655,932 |
|
6,041,136 |
|
|
|
Waddell & Reed Advisors Small Cap |
|
330,918 |
|
4,295,313 |
|
|
|
Waddell & Reed Advisors Vanguard |
|
545,873 |
|
4,508,911 |
|
|
|
Other Waddell & Reed Advisors Funds |
|
2,544,192 |
|
14,979,658 |
|
|
|
Total Waddell & Reed Advisors Group of Mutual Funds shares |
|
|
|
57,142,912 |
|
|
|
|
|
|
|
|
|
|
|
Ivy Funds shares (various funds) |
|
512,481 |
|
6,456,327 |
|
|
|
Total investments |
|
|
|
$ |
74,247,183 |
|
|
December 31, 2002 |
|
Number |
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
Torchmark Corporation common stock |
|
63,888 |
|
$ |
2,334,499 |
|
|
Waddell & Reed Financial, Inc. Class A common stock |
|
351,693 |
|
6,920,084 |
|
|
|
Cash |
|
— |
|
321,242 |
|
|
|
|
|
|
|
|
|
|
|
Waddell & Reed Advisors Group of Mutual Funds shares: |
|
|
|
|
|
|
|
Waddell & Reed Advisors Cash Management |
|
7,006,276 |
|
7,006,276 |
|
|
|
Waddell & Reed Advisors Core Investment |
|
2,004,106 |
|
8,898,229 |
|
|
|
Waddell & Reed Advisors International Growth |
|
724,520 |
|
3,637,091 |
|
|
|
Waddell & Reed Advisors New Concepts |
|
871,524 |
|
5,054,839 |
|
|
|
Waddell & Reed Advisors Science and Technology |
|
627,917 |
|
4,364,025 |
|
|
|
Other Waddell & Reed Advisors Funds |
|
3,003,338 |
|
17,352,192 |
|
|
|
Total Waddell & Reed Advisors Group of Mutual Funds shares |
|
|
|
46,312,652 |
|
|
|
|
|
|
|
|
|
|
|
W&R Funds, Inc. shares (various funds) |
|
319,746 |
|
3,159,338 |
|
|
|
Total investments |
|
|
|
$ |
59,047,815 |
|
5
During 2003 and 2002, the Plan's investments (including investments bought and sold, as well as held during the year) appreciated (depreciated) as follows:
|
|
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Torchmark Corporation common stock |
|
$ |
459,908 |
|
(181,178 |
) |
|
Waddell & Reed Financial, Inc. Class A common stock |
|
1,344,198 |
|
(4,031,049 |
) |
|
|
|
|
|
|
|
|
|
|
Waddell & Reed Advisors Group of Mutual Funds: |
|
|
|
|
|
|
|
Accumulative |
|
595,268 |
|
(733,201 |
) |
|
|
Asset Strategy |
|
141,867 |
|
1,336 |
|
|
|
Bond |
|
2,603 |
|
38,163 |
|
|
|
Continental Income |
|
46,394 |
|
(34,853 |
) |
|
|
Core Investment |
|
1,471,804 |
|
(2,625,829 |
) |
|
|
Dividend Income |
|
22,386 |
|
— |
|
|
|
Global Bond |
|
172,010 |
|
(101,612 |
) |
|
|
Government Securities |
|
(34,790 |
) |
59,000 |
|
|
|
High Income |
|
86,201 |
|
(75,853 |
) |
|
|
International Growth |
|
665,793 |
|
(835,011 |
) |
|
|
Limited-Term Bond |
|
2,453 |
|
227 |
|
|
|
New Concepts |
|
1,782,065 |
|
(2,003,165 |
) |
|
|
Retirement Shares |
|
150,818 |
|
(149,584 |
) |
|
|
Science and Technology |
|
1,458,851 |
|
(1,595,705 |
) |
|
|
Small Cap |
|
1,063,794 |
|
(601,024 |
) |
|
|
Value |
|
384,666 |
|
(261,638 |
) |
|
|
Vanguard |
|
764,334 |
|
(496,952 |
) |
|
|
Total Waddell & Reed Advisors Group of Mutual Funds |
|
8,776,517 |
|
(9,415,701 |
) |
|
|
|
|
|
|
|
|
|
|
Ivy Funds: |
|
|
|
|
|
|
|
Asset Strategy |
|
11,556 |
|
748 |
|
|
|
Core Equity |
|
13,437 |
|
(20,566 |
) |
|
|
Cundill Global Value |
|
22,118 |
|
— |
|
|
|
European Opportunities |
|
5,503 |
|
— |
|
|
|
Global Natural Resources |
|
49,448 |
|
— |
|
|
|
High Income |
|
9,942 |
|
(1,553 |
) |
|
|
International Balanced |
|
85 |
|
— |
|
|
|
International Growth |
|
178,161 |
|
(122,670 |
) |
|
|
International Value |
|
188 |
|
— |
|
|
|
Large Cap Growth |
|
111,460 |
|
(63,142 |
) |
|
|
Limited-Term Bond |
|
(42 |
) |
518 |
|
|
|
Mid Cap Growth |
|
36,282 |
|
(13,286 |
) |
|
|
Mortgage Securities |
|
(9 |
) |
— |
|
|
|
Pacific Opportunities |
|
40,308 |
|
— |
|
|
|
Real Estate Securities |
|
(3 |
) |
— |
|
|
|
Science and Technology |
|
400,727 |
|
(397,508 |
) |
|
|
Small Cap Growth |
|
405,224 |
|
(267,419 |
) |
|
|
Small Cap Value |
|
65 |
|
— |
|
|
|
Total Ivy Funds |
|
1,284,450 |
|
(884,878 |
) |
|
|
Net appreciation (depreciation) |
|
$ |
11,865,073 |
|
(14,512,806 |
) |
6
(5) Contributions by Participants and Participating Employers
The contributions of each participating employer and its employees for the years ended December 31 are as follows:
|
|
|
2003 |
|
2002 |
|
|||||
|
|
|
Employee |
|
Employer |
|
Employee |
|
Employer |
|
|
|
Waddell & Reed Financial, Inc. |
|
$ |
98,767 |
|
45,732 |
|
74,350 |
|
40,348 |
|
|
Waddell & Reed, Inc. |
|
3,238,550 |
|
1,330,084 |
|
3,139,924 |
|
1,335,950 |
|
|
|
Waddell & Reed Investment Management Company |
|
787,296 |
|
399,176 |
|
766,402 |
|
404,492 |
|
|
|
Waddell & Reed Services Company |
|
888,614 |
|
458,539 |
|
838,680 |
|
448,545 |
|
|
|
The Legend Group |
|
302,325 |
|
147,824 |
|
295,338 |
|
148,695 |
|
|
|
Austin Calvert & Flavin, Inc. |
|
173,285 |
|
112,886 |
|
176,179 |
|
121,384 |
|
|
|
|
|
$ |
5,488,837 |
|
2,494,241 |
|
5,290,873 |
|
2,499,414 |
|
(6) Related Party Transactions
Plan investments include shares of mutual funds managed by Waddell & Reed Investment Management Company and Waddell & Reed Ivy Investment Company, as well as shares of Class A common stock of Waddell & Reed Financial, Inc. Waddell & Reed Financial, Inc. and its affiliates are the sponsors, as defined by the Plan, and, therefore, these transactions qualify as party-in-interest.
7
Schedule 1
WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN
Schedule of Assets Held for Investment Purposes
December 31, 2003
|
Identity of
issuer, borrower, |
|
Description of investment |
|
Current |
|
|||||
|
* |
|
Cash |
|
|
|
— |
|
$ |
367,383 |
|
|
|
|
Torchmark Corporation |
|
46,315 |
|
shares of common stock |
|
2,109,185 |
|
|
|
* |
|
Waddell & Reed Financial, Inc. |
|
348,311 |
|
shares of Class A common stock |
|
8,171,376 |
|
|
|
|
|
|
|
|
|
|
|
10,647,944 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
553,569 |
|
shares of Accumulative |
|
3,183,021 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
210,451 |
|
shares of Asset Strategy |
|
1,447,903 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
150,372 |
|
shares of Bond |
|
978,922 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
6,133,192 |
|
shares of Cash Management |
|
6,133,192 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
57,628 |
|
shares of Continental Income |
|
401,091 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
1,905,037 |
|
shares of Core Investment |
|
9,868,089 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
24,323 |
|
shares of Dividend Income |
|
268,284 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
796,875 |
|
shares of Global Bond |
|
2,868,750 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
263,409 |
|
shares of Government Securities |
|
1,485,627 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
148,614 |
|
shares of High Income |
|
1,125,007 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
682,204 |
|
shares of International Growth |
|
4,079,578 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
39,818 |
|
shares of Limited-Term Bond |
|
405,349 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
926,637 |
|
shares of New Concepts |
|
7,237,035 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
116,568 |
|
shares of Retirement Shares |
|
760,025 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
655,932 |
|
shares of Science and Technology |
|
6,041,136 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
330,918 |
|
shares of Small Cap |
|
4,295,313 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
182,565 |
|
shares of Value |
|
2,055,679 |
|
|
|
* |
|
Waddell & Reed Advisors Group of Mutual Funds |
|
545,873 |
|
shares of Vanguard |
|
4,508,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Waddell & Reed Advisors Group of Mutual Funds |
|
|
|
|
|
57,142,912 |
|
|
|
* |
|
Ivy Funds |
|
11,156 |
|
shares of Asset Strategy |
|
139,116 |
|
|
|
* |
|
Ivy Funds |
|
9,613 |
|
shares of Core Equity |
|
81,710 |
|
|
|
* |
|
Ivy Funds |
|
26,047 |
|
shares of Cundill Global Value |
|
296,941 |
|
|
|
* |
|
Ivy Funds |
|
4,032 |
|
shares of European Opportunities |
|
80,196 |
|
|
|
* |
|
Ivy Funds |
|
20,642 |
|
shares of Global natural Resources |
|
344,729 |
|
|
|
* |
|
Ivy Funds |
|
9,730 |
|
shares of High Income |
|
85,916 |
|
|
|
* |
|
Ivy Funds |
|
244 |
|
shares of International Balance |
|
3,085 |
|
|
|
* |
|
Ivy Funds |
|
78,974 |
|
shares of International Growth |
|
875,820 |
|
|
|
* |
|
Ivy Funds |
|
551 |
|
shares of International Value |
|
5,367 |
|
|
|
* |
|
Ivy Funds |
|
57,900 |
|
shares of Large Cap Growth |
|
539,052 |
|
|
|
* |
|
Ivy Funds |
|
7,012 |
|
shares of Limited-Term Bond |
|
72,995 |
|
|
|
* |
|
Ivy Funds |
|
25,157 |
|
shares of Mid Cap Growth |
|
221,633 |
|
|
|
* |
|
Ivy Funds |
|
211 |
|
shares of Mortgage Securities |
|
2,282 |
|
|
|
* |
|
Ivy Funds |
|
35,754 |
|
shares of Pacific Opportunities |
|
326,431 |
|
|
|
* |
|
Ivy Funds |
|
3,567 |
|
shares of Real Estate Securities |
|
54,075 |
|
|
|
* |
|
Ivy Funds |
|
90,330 |
|
shares of Science and Technology |
|
1,750,587 |
|
|
|
* |
|
Ivy Funds |
|
129,261 |
|
shares of Small Cap Growth |
|
1,539,503 |
|
|
|
* |
|
Ivy Funds |
|
2,300 |
|
shares of Small Cap Value |
|
36,889 |
|
|
|
|
|
Total Ivy Funds |
|
|
|
|
|
6,456,327 |
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|
|
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Total investments |
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|
$ |
74,247,183 |
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* Indicates party-in-interest investment.
See accompanying report of Independent Registered Public Accounting Firm.
8
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Administrative Committee of the Plan has duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Overland Park, State of Kansas, on June 28, 2004.
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WADDELL & REED FINANCIAL, INC. |
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401(K) AND THRIFT PLAN |
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By: |
/s/ Daniel P. Connealy |
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Daniel P. Connealy, Member |
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Administrative Committee |
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By: |
/s/ Michael D. Strohm |
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Michael D. Strohm, Member |
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Administrative Committee |
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By: |
/s/ William D. Howey, Jr. |
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William D. Howey, Jr., Member |
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Administrative Committee |
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9